SolarCity Corp (NASDAQ: SCTY) has received an all-stock bid from Tesla Motors Inc (NASDAQ: TSLA) to acquire the company. The price seems to be too low, Credit Suisse’s Patrick Jobin said in a report. He downgraded the rating on SolarCity from Outperform to Neutral, while lowering the price target from $38 to $27.

The probability of the deal being consummated at, or near, the proposed terms now appears to be 60-70 percent, despite concerns on corporate governance and limited near-term strategic and financial rationale for the acquisition, analyst Patrick Jobin commented.

Near-Term Synergies

Jobin estimated potential near-term synergies at $156m-$387m. Although Tesla is yet to disclose synergy targets, there could be some realized synergies mainly from “duplicative G&A cost reductions and customer acquisition benefits (although we still contend the later could be realized through a joint sales agreement instead of outright purchase),” Jobin mentioned.

There could be a 25-50 percent reduction in G&A costs, saving $82-$163m per annum. Another 10-30 percent reduction in CAC could result in saving ~$75-$224m per year.

“Collectively these cost reductions would enable SolarCity to reduce origination costs by ~$0.16-$0.39/w which improves the unlevered contracted IRR by 180-540 bps from 8.1% to 9.9-13.5%. This should enable SCTY to sell assets to third parties, if desired, and earn a healthy ~$0.145/w incremental margin, accelerating SCTY's path to generating cash,” the analyst wrote.